Could Canada provide a Brexit breakthrough for the UK?
By Andrew Hammond – July 17 2019/ The Business Times
THE EU and Canada begin a two-day summit in Montreal on Wednesday. Centrestage in the discussions will be the landmark bilateral trade agreement which many Brexiteers believe is the best template for a future EU-UK deal, despite the plethora of potential pitfalls for the United Kingdom.
The so-called Comprehensive Economic and Trade Agreement (CETA), covering around a fifth of the global economy, took the best part of a decade to negotiate and was signed in October 2016. It saw some 98 per cent of all tariffs on goods traded between the two powers become duty-free, and has been billed as “the most ambitious trade agreement the EU has ever concluded”. Most tariffs were removed when the deal came provisionally into force in 2017 with the key remaining step being full ratification which could potentially take several more years.
The EU has negotiated a wide range of external trade agreements for member states, but for many Brexiteers, it is the “Canadian model” that stands out. Part of the reason for this is that, in their eyes, it would allow the United Kingdom to completely leave the Brussels-based club, including the Customs Union and Single Market, and allow London to do free trade deals with other countries.
However, glorified as CETA is by these same Brexiteers, it would come with significant costs for the United Kingdom, given the different starting positions of London (a member of the Brussels-based club for over four decades and embedded into many of its structures) and Ottawa, vis-a-vis the EU. Whereas CETA represents a net level of integration between the EU and Canadian economies, a similar deal would represent a sharp break (or “hard Brexit”) between the United Kingdom and the EU. SEE ALSO: Higher chance of no-deal Brexit sends sterling to 27-mth low
Moreover, CETA does little to enable some key business sectors. Take the example of financial services, a huge part of the UK economy, which sees neither Canadian nor EU firms getting so-called “passporting” rights which would allow their firms to sell their products in each other’s markets. CETA also does not eliminate border controls, although it does incentivise the use of advanced electronic checking to expedite customs clearance.
A further potential challenge comes with the fact that a Canadian-style deal would end the UK’s preferential access to over 50 markets outside Europe with which the EU has trade agreements. While there would be the opportunity to renegotiate these bilaterally, there are no guarantees that London would obtain terms as good as those today, despite what Brexiteers say, as current UK-Japanese discussions indicate.
While Brexiteers also suggest that negotiating a Canadian-style deal would be relatively easy, this belies the challenges involved. Indeed, in 2016, after around seven years of negotiations, there was a near-complete breakdown of CETA talks. This came when the legislature in Wallonia – a region of Belgium with a population of around 3.5 million – indicated to Canada that its opposition to key provisions of the proposed deal was a “red line”.
While these concerns have been smoothed, Canada’s then-Minister of International Trade (and now Foreign Minister) Chrystia Freeland asserted at the time that an agreement was now “impossible”. Moreover, EU trade commissioner Cecilia Malmstrom also said that “if we can’t make with Canada, I’m not sure we can make with the United Kingdom”. European Council president Donald Tusk also exclaimed that “if you are not able to convince people that trade agreements are in their interests … we will have no chance to build public support for free trade, and I am afraid that means that CETA, even should it yet be passed, could be our last free trade agreement”.
What this exemplifies, on both economic and political fronts, is that the various alternative models to the UK’s membership of the EU – from a “no-deal”, to “harder Brexit” like Canada and “softer Brexit” like Norway – all involve key trade-offs. And this is why the UK government has since the Brexit referendum in 2016 found it so very hard to find a single alternative model, which can secure consent from other key parties, that comes close to providing the same balance of influence and advantages that Britain gets from its current status inside the 28-member union.
For all the EU’s flaws – and it has many that need to be better tackled – the nation now enjoys a uniquely positive position in what is the world’s largest political and economic union. For instance, London has all the benefits of the Single Market economic powerhouse, but is not part of the eurozone, it has retained a budgetary rebate and ensured it cannot be outvoted by eurozone countries against UK interests. And it is not part of the Schengen border-free area too, which means it operates border controls with other EU member states.
The stark reality is that, while the nature of bilateral agreements with the EU varies, all have key disadvantages, including no full access to services (such as the financial sector) which accounts for 80 per cent of the UK economy. Take the example of Norway, an example of a “softer Brexit” at the opposite pole to Canada, which would provide considerable continuing access to the Single Market. Yet, in exchange, Oslo is a “rule taker” rather than “rule maker”, being required to adhere to EU rules without having a vote on them as an EU member such as the United Kingdom does now, it must accept free movement of people, make contributions to EU programmes and budgets, and do customs checks on goods crossing into the EU.
Moreover, one other key challenge with this “softer Brexit” option is that of potentially needing to rejoin the European Free Trade Association (EFTA) – a small club of non-EU nations comprising not just Norway, but also Iceland, Liechtenstein and Switzerland – with access to the European Single Market. While the United Kingdom was a founding EFTA member in 1960, there is no guarantee of re-entry owing to the fact that its membership could dramatically skew the balance of power within the club to the potential chagrin of some current members.
Taken overall, while CETA contains many benefits for the EU and Canada, the balance of advantages and disadvantages would be very different for the United Kingdom. For all the EU’s flaws, the United Kingdom now enjoys a uniquely positive position in what is the world’s largest political and economic union, and continued membership of a reformed EU would be a better option for the nation.